Before you decide to borrow money, understand your loan options.

1 Types of Loans

Before you decide to borrow money, understand your loan options.

• Personal loans
  • Secured Loans - personal property is offered as collateral and may be granted to individuals with poor or no credit history
  • Unsecured loans - based on credit scores; no collateral is necessary
• Business Loans (Only a few are listed below. For the specific business loans offered, contact your bank or financial institution.)
  • Term Loans - general purpose loans that are paid back over a set period
  • Short-Term Loans - smaller loans that are taken for periods of less than one year and paid back in one lump sum
  • Equipment Financing - loans granted for purchasing equipment; equipment is used as collateral
  • Lines of Credit - specific loan amounts are granted per year on an as needed basis; these loans usually need to be repaid quickly
  • Small Business Administration (SBA) Loans - loans offered by banks or financial institutions that are guaranteed by the SBA (for more information about the different types of SBA loans and loan requirements, visit the SBA Web site at www.sba.gov/services/financialassistance/sbaloantopics/index.html)
• Student loans
  • may be obtained through private lending institutions
  • may be obtained through federal aid (to apply for federal aid, visit the Free Application for Federal Student Aid [FAFSA] Web site at http://www.fafsa.ed.gov/)
• Auto loans
• Mortgages
  • Conventional Mortgages - offered as fixed-rate (interest rate is set and will not change over the course of the loans) and variable-rate (interest rates may change based on the flux of the market)
  • Government Mortgages - FHA loans (learn more at http://www.hud.gov/buying/loans.cfm), VA loans (learn more at http://www.homeloans.va.gov/index.htm), and RHS loans (learn more at http://www.rurdev.usda.gov/rhs/sfh/brief_rhdirect.htm)
• Equity Loans
  • Home Equity Loans - taken as a lump sum against equity built into a home; money taken from these loans may be used for any purpose
  • Home Equity Lines of Credit (HELOC) - set amount available may be taken as needed against the equity built into a home; money taken from these loans may be used for any purpose
  • Home Improvement Equity Loans - taken against equity built into a home; these loans must be used for home repairs, renovations, or improvements

2 Interest Rates

Regardless of the type of loan you decide upon, you need to pay attention to current interest rates. These will play an important role in deciding the total amount of the loan that must be paid back.

Since most banks and financial institutions are willing to compete for your business, it may be a good idea to shop around for the best possible interest rate. Just be sure that there are no hidden fees included with this rate, such as

• Origination fees
• Appraisal fees
• Underwriting fees
• Administration fees
• Credit Report fees
• Processing fees

These fees may not cause the interest rate to increase, but they will be included in your monthly payments. If this is the case, you may be better off choosing a loan with a slightly higher interest rate instead of paying a large amount in monthly or up front fees.

3 Length of Loan

Depending upon the type of loan you need, the length of the loan will also play a part in determining your total loan cost. Since different loans are set up in different ways, and since there are so many loan lengths, it is best to discuss your options with a bank or financial institution.

Some loans will charge you an extra fee, called a prepayment penalty, if you pay off a loan early. If you do obtain a loan with the hopes of paying the amount in full prior to the due date, be sure to inquire about any prepayment penalties you may be charged.

For federal student loans, the government pays for the interest on your loan until a fixed period of time after you graduate (six months for Stafford Loans and nine months for Federal Perkins Loans) on the condition that you continue to meet all loan requirements. Usually these loans require that you pay the entire loan off within a set number of years. However, there are ways to quality for loan deferment or forbearance. For more information about qualifying for deferment visit, https://www.dl.ed.gov/borrower/QctrHelpIndex.do?SectionId=FAQU&APageID=QctrFaquA011.

4 Down Payment Amount

The amount of money down depends on the financial institution granting the loan. Although not all loans require down payments (usually home equity loans use the house as collateral so no down payment is necessary), you may benefit by putting some money down on your mortgage or auto loan.

Usually mortgages require a minimum of 3% to 5% down. However, some financial institutions offer no-money down incentives to homebuyers. Your unique situation will determine how much available money you can put down.

Keep in mind, though, that the more money you put down on a mortgage or car loan, the lower your total loan amount will be. Down payments also help lower monthly payments. To understand how down payments will affect your loan, contact your financial advisor or banking institution.

5 Current Financial Situation

The most important factor in deciding whether to borrow money is you. Your current financial situation will dictate whether you need a new car, a house, student loans, money to start or run a business, or money to update your home. Looking at monthly and yearly budgets may help you understand just how much you can afford to make in loan payments, thus helping you decide on a loan amount.

If you do decide that you need to borrow money, check on your current credit score to ensure that you will be approved for the best possible loan. Everyone is entitled to one free credit report per year. To order your free credit report, go to https://www.annualcreditreport.com/. Check to ensure that all of your credit is in order and report any discrepancies immediately.

Additional Resources

• Mortgage-X Web site:

http://mortgage-x.com/library/loans.htm

• GovLoans.gov Web site: http://www.govloans.gov/govloans_en.portal?_nfpb=true&_pageLabel=gbcc_page_home&_nfls=false
• AARP Web site: http://www.aarp.org/money/personal/articles/ManagingMoneyOverview.html
• Mint.com Web site:

http://www.mint.com/features/budget